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Why Nordstrom May End the Year with Subdued Revenue Growth

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Dec. 4 2020, Updated 10:52 a.m. ET

Top line under pressure

Nordstrom’s (JWN) overall revenue, including credit card revenue, rose 1.1%, -1.4%, and 6.4%, respectively, in 1Q16, 2Q16, and 3Q16. The fall in Nordstrom’s 2Q16 revenue came after 27 straight quarters of top line growth.

The upscale department store is facing several headwinds, including an uncertain retail environment, the growing strength of e-commerce players such as Amazon (AMZN), and competition from off-price retailers such as TJX Companies (TJX) and Ross Stores (ROST). These off-price retailers offer great bargain deals to consumers.

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Subdued sales expectations

Nordstrom’s same-store sales fell 1.7% and 1.2%, respectively, in 1Q16 and 2Q16. However, the company recovered in 3Q16, with same-store sales growth of 2.4%. Same-store sales growth is an important metric for retailers. It measures the changes in the sales of a retailer’s existing stores, ignoring the impact of stores closed or opened during a certain period. The same-store sales of Macy’s (M) and Kohl’s (KSS) fell 3.3% and 1.7%, respectively, in 3Q16.

The same-store sales of Nordstrom’s upscale full-line stores fell 4.5% in 3Q16, while that of its off-price Rack stores rose 0.9%. Nordstrom’s off-price business and online channels have helped to reduce the weakness in the company’s full-line business.

Lackluster guidance

Following its 3Q16 results, Nordstrom expects its 2016 same-store sales to remain flat compared to the previous year. The company had expected its 2016 same-store sales to grow in the -1%–1% range. The company expects its net sales, excluding credit card revenue, to rise ~3.5% in 2016.

Nordstrom is taking several initiatives to improve its sales, including enhancing its merchandise assortment. On its 3Q16 conference call, Nordstrom’s co-president, Blake W. Nordstrom, mentioned new collaborations with the J.Crew and Good American brands. The company also rolled out a women’s lifestyle concept shop in certain stores in partnership with Nike (NKE).

Nordstrom missed analysts’ revenue expectations in two of the first three quarters of 2016. Currently, analysts expect Nordstrom’s revenue, including its credit card revenue, to rise 2.5% in 2016, compared to its growth rate of 6.9% in 2015.

We’ll discuss analysts’ recommendations for Nordstrom’s stock in the next part of this series.

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